In an ongoing effort to put a stop to microcap fraud, SEC recently suspended trading in the stock of nine penny stock companies. If you are unfamiliar with the term microcap fraud, it is the term that has been coined for fraud involving penny stock companies. It applies to companies with low (“micro”) capitalizations, or total value of the company’s stock. These are traded in the “over-the-counter” (OTC) market rather than on a national securities exchange, and are subject to more risk because of the lack of publicly available information, no minimum listing standards, and high risk.

To target this fraud, the SEC’s enforcement division created a Microcap Fraud Task Force last year which targets fraudulent conduct in securities issued by microcap companies. In this case, the SEC determined that nine specific companies they suspended were heavily promoted microcap stock issuers. By actively surveying the penny stock market for suspicious activities, the SEC is able to neutralize potential threats to investors before too many fall victim to fraud.